IT’s like a warning to fishermen not to venture out into the choppy seas during a storm. The city’s premier broking houses and insurance companies are asking first-time investors to keep off from direct equity investments in an already overheated share market.
“There are two reasons why first-time investors with a very small corpus of funds (upto Rs 15,000) are being asked to keep away from investing directly into equities—The first is that the specified ‘A’ group shares are currently having valuations which are largely unaffordable for the small investors. The second reason is the so-called affordable lots of ‘B’ and ‘C’ group shares pose the threat of finding very few buyers once the market undergoes a major correction of 200 to 300 points,” said Sharekhan business partner Mradul Verma.
He said the current valuations of a majority of shares listed in the bourses were affordable only for High Net Worth Investors (HNIs) and ‘Day Traders’ who keep buying and selling shares on a particular day in the bourses and do not really need to invest fresh funds for buying buy shares every day.
“This dilemma of small investors on whether to invest in direct equities or not had been capitalised upon very well by mutual funds and insurance companies selling Unit Linked Plans (ULIPs) offering an indirect route to investing in equities during the closing days of the current financial year,” said Verma.
{{/usCountry}}“This dilemma of small investors on whether to invest in direct equities or not had been capitalised upon very well by mutual funds and insurance companies selling Unit Linked Plans (ULIPs) offering an indirect route to investing in equities during the closing days of the current financial year,” said Verma.
{{/usCountry}}“We would recommend investors to keep a watch even on mutual funds where their money had been parked in purely equity linked products. If the market plunges, it would be better for investors to immediately switch to those funds which invest in debt instruments,” he added.
Manoranjan Sahoo, Regional Head (UP & Uttaranchal), Bajaj Allianz Life Insurance Company Ltd, believes that people invest directly in equities once they are adequately insured for all their basic future needs such as children’s education and retirement plans.
“If a small investor is expecting to invest 20 per cent of his income in direct equity and thinking of reaping 20 per cent returns immediately in the bourses, it’s time he or she checked her risk appetite. It’s always logical to have a long-term perspective on investments,” he said.
The Systematic Investment Plans (SIPs) of Mutual Funds and Insurance companies are the safest bet for participating in the equity market with a very small corpus of funds which could be as little as Rs 1,000 a month, he added.